Off to See the Wizard

by D. J. Connolly

 

You probably saw the movie, The Wizard of Oz, more than once.  It was based on a book written by a fellow named L. Frank Baum.  Professors who study such matters have claimed that Mr. Baum intended the book to be a parable.  It told a story about politics in America around the beginning of the twentieth century [1].

Every character and event in the book was supposed to represent a character or event in the political drama being played out at the time.  Everything the working people placed their hopes in had failed them.  The Wizard of Oz was a parable about those failures.  Presidents, congressmen, governors, and state legislators had all failed to fix the economic problems as they had promised [1].

According to the professors, the book expressed a deep cynicism about our political system.  Workers and farmers saw the fruits of their labor going mainly to corporations.  Workers and farmers cast a lot more votes than did corporations.  So they tried to use the ballot box to get a better deal in the economic game.  It didn't work.

It didn't work because, in economic matters, "We the People" had little or no influence over government policy.  We elected presidents, governors, congressmen, and state legislators.  But they didn't control economic policy either.  Federal judges did.  Beginning in the 1880's, the Supreme Court used the substantive due process scam to steal control of the national economy [2].

Elected politicians couldn't fix economic problems because courts struck down every attempt that might succeed.  Based on a review of its decisions, one can mount a cogent argument that the U. S. Supreme Court caused most of our economic grief in the era from 1890 to 1937.  The grief we're talking about includes the Great Depression [3].

Of course there was no single cause for the Depression.  Economists and historians have offered various lists of partial causes.  They include things like the 1929 stock market crash, the 1930 Smoot-Hawley tariff law, economic problems abroad, and an overly timid Federal Reserve.  You can review the lists in detail in hundreds of books.  See, for example, the works by Batra, Galbraith, Garraty, and Schlesinger listed in the Bibliography at the end of this article.  Unfortunately, you will not find a coherent explanation for the causes of the Great Depression in those hundreds of books.  The only coherent explanation is unacceptable in academic circles.

To be sure, economists and historians have got part of the story right.  They identified various partial causes that helped trigger the depression, prolonged it, or made it more severe.  But there was only one main cause.  Fraudulent rulings by the U. S. Supreme Court over several decades created and maintained economic conditions which had to end in disaster.  Historians, legal scholars, and economists lay the groundwork for placing most of the blame on the Supreme Court.  But they avoid drawing the obvious conclusion [3].

Social scientists wouldn't think of blaming the Supreme Court for the consequences of its rulings.  They cling to the demonstrably false premise that all the Court does is faithfully interpret the laws and the Constitution.  If that premise were correct, blaming the Court would be the same as blaming the laws and the the Constitution.  However, if the justices are making discretionary policy, they deserve blame for the damage their policies cause.  Supreme Court justices are certainly making discretionary policy.  It trashes the Constitution; but they do it anyway.

Every once in a while our judicial employees invent a brand new mandate they claim to find in the Constitution.  They then hand down orders to exploit their bogus new mandate in support of whatever agenda they're working at the time.  Sometimes those orders lead to a big crime wave, a civil war, a depression, or some other catastrophe.

Social scientists then perform a series of detailed studies to document reasons for the catastrophe.  However, on any issue that might threaten judicial independence, they stick their heads in the sand.  They identify all the minor causes for the catastrophe and pretend that's the whole story.

They don't really want to know the whole story.  The Supreme Court is not a trustworthy and unbiased channel for instructions from our founders.  It's a gang of stealth legislators creating new public policies out of whole cloth, policies which often lead to tragic results.  Academics, lawyers, and journalists don't want any part of that idea.  Widespread public awareness of that idea might lead "We the People" to do something rash.
 

A "FUNDAMENTALLY UNSOUND" ECONOMY

Let's review the generally accepted causes of the Great Depression.  John Kenneth Galbraith, one of the better known economists to expound on the subject, observed that, in 1929, the U. S. economy was "fundamentally unsound."  Indeed it was.  And the next few pages will describe how it got that way [4].

To explain the fundamental unsoundness, Galbraith described 5 economic "weaknesses":

1. A maldistribution of income; The rich had too much income, and the working classes too little.

2. What Galbraith called a bad corporate structure; As he put it, "American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, imposters, and frauds."

3. A bad banking structure; modern institutional firewalls (like deposit insurance) did not exist to protect the banking system from a "chain reaction" when "good" loans went bad.

4. Export markets suffered, reducing demand for American products, when Congress unwisely increased tariffs.

5. The poor state of economic intelligence; the economists then advising policy makers had, in Galbraith's view, inadequate professional tools.

You will now learn how an activist Supreme Court created and maintained the "fundamental" unsoundness.  I'll first summarize my argument, then I'll fill in, and document, some specifics.   Finally, I'll connect the specifics to Galbraith's five weaknesses.
 

SUMMARY OF ARGUMENT

The Supreme Court seized control of the nation's economy in the 1880's and held it through the mid 1930's.  For several decades the Court acted as a national economic policy czar.  Its policies caused a small percent of the households to end up with an unsupportable share of national income and most of the wealth.  Let's call those related problems the 'income gap' and the 'wealth gap.'  The growing income gap (Galbraith's maldistribution of income) finally devastated the purchasing power of the working class.  The wealth gap funded extreme speculative excess on the part of the investing class.  These two developments finally destroyed the economy after the Court tightened its stranglehold on national economic policy during the 1920's.  The justices maintained that stranglehold, prolonging the Depression, until 1937 when President Franklin D. Roosevelt alarmed them with a credible threat to their power [5].
 

THEIR PERSONAL "ECONOMIC PREDILECTIONS"

In a March 9, 1937 radio "fireside chat," President Franklin D. Roosevelt observed that a majority of Supreme Court justices had been reading into the Constitution their own "personal economic predilections."  Among historians and legal scholars, it's well accepted that activist judges tortured the Constitution in order to take control of the American economy during the 1880's and maintain that control for four or five decades [5].  

By the mid 1880's fraudulent Supreme Court rulings had completely destroyed Congress's efforts to use the Fourteenth Amendment for its intended purposes, to define and safeguard the rights of former African American slaves.  And the justices were looking for something else to use it for, something a little more to their liking.  In 1886, in Santa Clara County v. The Southern Pacific Railroad Company, they announced that the real purpose of the Fourteenth Amendment was to empower the Court to supervise all the states' corporate tax and regulatory policies.

You think I'm kidding, Right?  

Chief Justice Waite opened arguments in the case with the following statement:

"The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations.  We are all of the opinion that it does."

The Court did not "wish to hear argument on the question" because there wasn't any evidence to support what it wanted to do [6].

Then, in 1890, the Court seized control over the power to set railroad freight rates.  Some states had tried to set them a little too low for the judicial taste.  The Court cut the heart out of the Sherman Anti-Trust Act in 1895.  A corporation is a creature of the state; it would not be a great stretch to call it an agent of the state.  The idea that "We the People" intended the Fourteenth Amendment to empower our judicial employees to protect corporations from government regulation is worse than preposterous; it's comical [7].

A legal scholar named B. F. Wright compiled a list of federal Court rulings, between 1899 and 1937, which blocked attempts by states to regulate corporations.  Mr. Wright had 184 decisions on the list [8].

For example, the Court said that neither states nor the federal government could place limits on the number of hours employees could be forced to work; it claimed that the Constitution forbade any kind of minimum wage law. It also forbade any laws against child labor.   During the 1920's, the Supreme Court redoubled its efforts to block economic policies demanded by "We the People."  The number of its rulings, in that decade, which struck down government laws regulating the behavior of corporations exceeded the total number during the prior fifty years.  The 1920's ended in the Great Depression [9].

The economic effects of Supreme Court rulings were direct and obvious.  Between 1923 and 1929, output-per-labor-hour increased by 32 percent.  Yet wages increased by only 8 percent.  The average work week remained at 50 hours or higher.  Sixty, seventy, or even eighty hour work weeks were not uncomman.  The Chief Justice, explaining the Court's policies toward labor, reportedly said, "That faction we have to hit every little while" [10].

At the risk of being tedious, let me remind you what parts of the Constitution the Court used to justify its economic war against "We the People."  It was the "due process" clauses of the Fifth and Fourteenth Amendments.  It used the Taney Court's substantive due process scam to write its members' own "personal economic predilictions" into the Constitution [5].
 

THE INCOME AND WEALTH GAPS

For four decades, court rulings distorted the distribution of income and wealth.  A wealthy minority had all the economic leverage.  All "We the People" had was our votes.  Federal judges made those votes meaningless, robbing us of whatever control they might have given us.

When the Depression came, there was plenty of money in circulation.  Between 1921 and 1929 the money supply increased by about 62 percent, a rate of increase that's generally considered a bit inflationary.  But the money was badly distributed.  In 1922, the richest 1 percent of the population had about 32 percent of all the wealth.  Between then and 1929, when the market crashed, its share climbed to over 36 percent; that year the top 1 percent had a higher share of national wealth than at any time in history [11].

The income and wealth gaps set the stage for the depression in four ways [12].

- The spending power of workers and farmers declined to a level inadequate to sustain normal economic activity.

- Farmers and small businessmen had come to rely ever more heavily on borrowing to stay afloat.  Bankers weren't too happy to extend large amounts of credit to high risk customers.  But it was either that or go out of business.  High risk customers were about the only kind that came forward.  Excessive borrowing by those with disappearing ability to repay set the stage for a wave of bank failures.

- A small but wealthy minority had plenty of extra money to invest in profitable enterprises.  Too much investment capital and too little foresight led to more production than the masses who lacked income could consume.  Unsold goods piled up which eventually positioned many producers to go bankrupt.

- Some of those with too much money completely lost their sense of proportion.  They bid up the prices of common stocks far beyond any rational measure of true value.  A speculative bubble always ends.  And the higher stock prices rise above their intrinsic value, the more damage they do when they fall.  When the economy fell apart, Americans suffered a massive loss of confidence in their institutions and in the future.
 

FIVE "FUNDAMENTAL WEAKNESSES"

Now let's return to John Kenneth Galbraith's 5 "fundamental weaknesses."

1. A maldistribution of income: The income gap is certainly part of the story; and judicial activism caused and maintained it.

2. A bad corporate structure: The hospitality of American enterprise to "promoters, grafters, swindlers, imposters, and frauds" was due to the speculative excess encouraged by the "wealth gap."

3. A bad banking structure failed to contain the spread of bank failures: The direct cause of the bank failures was bad loans which can generally be traced to the income and wealth gaps.

4. Loss of export markets: This merely compounded the effects of the decline in domestic demand due to the income gap.

5. The poor state of economic intelligence: We had a poor state of economic intelligence from the dawn of civilization.  It didn't cause the Great Depression until white collar criminals on the Supreme Court began reading "their personal economic predilections" into the Constitution.  

 

NOTES & CITATIONS

1.  I first became aware of this claim through an article by Peter Dreier in the Cleveland Plain Dealer, March 3, 1995, page 12-J.  The title of the article was "A political allegory of failed American populist movement." Professor Dreier, at the time, was at Occidental College in Los Angeles.  The passage in quote marks is from Dreier's article.  I later found two related papers on the Internet.
- Parker, David B.  "The Rise and Fall of The Wonderful Wizard of Oz as a "Parable on Populism,"" Journal of The Georgia Association of Historians, vol. 15 (1994), pp. 49-63.
- Littlefield, Henry M., ‘The Wizard of Oz: Parable on Populism' American Quarterly, XVI, (1964), pages 47-58.

2.  A fairly complete description of the Substantive Due Process Scam can be found on the Internet.  See the two online essays, A Scam is Born and Evolution of a Scam.

3.  A law professor, named Fred Rodell, said in his 1955 book, Nine Men, that . . . "(Supreme Court justices) . . . were not entirely unresponsible . . . for the breadlines and apple salesmen," That's as strong as I've seen it said.  In all likelihood the reasons the charge that the Supreme Court caused the Depression has not been widely made are partly political.  Franklin D. Roosevelt knew that activist judges had caused the Depression.  He implied as much in his March 1937 "fireside chat" when he expressed concern that an unreformed Court would throw "all the affairs of this great nation back into hopeless chaos."  FDR didn't spell out that the Court had caused the "hopeless chaos" that he had proposed to lead the country out of.  Democrats were getting wonderful milage out of blaming it on the Republicans and former President Herbert Hoover.  But he warned that the Supreme Court, which had the gall to "amend the Constitution by the arbitrary exercise of judicial power" might well cause the Depression to recur.

4.  See Galbreath, Chapter X, for a discussion of Causes and Consequences of the Great Depression.

5.  A good account of the Court's use of the substantive due process doctrine to control the economy between 1890 and 1937 can be found in McCloskey, Chapter 5.  See also the online essays, A Scam is Born and Evolution of a Scam.  In his March 9, 1937 radio "fireside chat," President Franklin D. Roosevelt, quoting Justice Stone, observed that the Court majority had been reading into the Constitution their own "personal economic predilections"  The entire speech can be read (or listened to) on the Internet, courtesy of the Oyez Project, at http://oyez.nwu.edu/.

6. The Santa Clara County opinion can be found on the Internet at http://www.tourolaw.edu/patch/Santa/.  The Fourteenth Amendment was adopted in 1868 to guarantee the rights of citizenship to the recently freed Negro slaves.  And it said "Congress shall have power to enforce, by appropriate legislation, the provisions of this article."  In the next few years, Congress passed several laws to "enforce" the Amendment by protecting African American voting rights, punishing Ku Klux Klan hoodlums who terrorized and/or lynched Negroes, and guaranteeing Negro access to public accommodations.  By 1886, the Supreme Court had found various pretexts to nullify all this legislation.  See, for example, Carr, pages 35 - 47.  See also, Congress Shall Not Have the Power and Racism In the Court.

7.  See Schwartz, pages 181-184.

8.  See McCloskey, page 101.

9.  Schwartz, pages 190-202, 233, and 217 ff.

10. See Schlesinger, pages 66, 111, and 113.

11. See Rothbard, page 86.  See also Batra, page 125.  The share of national wealth held by the richest 1 percent of families may now (late 1998) be considered even higher than it was in 1929.  It depends on whose numbers you accept.  I've seen claims ranging from 21 percent to 47.5 percent.  Many analysts exclude, from family wealth, things like cars, home equity, and private pensions.  They also exclude the net present value of expected social security, medicare, food stamps, welfare payments, and other entitlements.  If you count all these assets and benefits, the share of wealth held by the richest 1 percent of families may presently be as little as half its value in 1929.  See, for example, the book by Cox and Elm.  See also the following special publications and news articles.
- Berry, Wendy.  "America's Wealth Pyramid," Washington Post, Jan. 6, 1999, Page A24.
- Hinderaker, John H. and Scott W. Johnson.  "The Truth About Income Inequality," Center of the American Experiment, Minneapolis Minnesota, December 1995
- Shmavlonian, Nadya.  "Staying On Target," Washington Post, Dec. 13, 1998, Outlook Section.
- Wolff, Edward N. "Top Heavy: A Study of the Increasing Inequality of Wealth in America." New York: Twentieth Century Fund, 1995.

12. See Garraty, page 8 and Batra, pages 123-9.
 

BIBLIOGRAPHY

Batra, Ravi. Regular Economic Cycles , St. Martin's Press, 1985.

Carr, Robert K. Federal Protection of Civil Rights: Quest for a Sword, Cornell University Press, 1947.

Galbraith, John Kenneth, The Great Crash: 1929, Houghton Mifflin, 1961.

Garraty, John A. The Great Depression, Harcourt Brace Jovanovich, 1986.

McCloskey, Robert G. The American Supreme Court, Second Edition , Revised by Sanford Levinson, University of Chicago Press, 1994.

Rodell, Fred. Nine Men: A Political History of the Supreme Court from 1790 to 1955, Fred B. Rothman and Company, Littleton, Colorado, 1988.  The book was originally published by Random House in 1955.

Rothbard, Murray. America's Great Depression, Richardson & Snyder, 1983.

Schlesinger, Arthur, Jr. The Crisis of the Old Order: The Age of Roosevelt, Houghton Mifflin 1957.

Schwartz, Bernard. A History of the Supreme Court, Oxford University Press, 1993.




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This article is exerpted from material in the book, Grand Larceny: An Unexpurgated History of the Supreme Court.

 

All Rights Reserved
D. J. Connolly